Kids catch onto the importance of money in life pretty quickly as they watch us use it. The way to show your child the value of a dollar is by teaching them the different ways a dollar is used.

Begin When They’re Young

Start showing your child at a young age how money works. It’s imperative for kids to learn that money is something that is earned. They need to understand that the products or services we need in life are provided in exchange for money, and the value or worth of what is being sold is up to the seller to determine. There is no way to purchase an item or service when you don’t have money

You also want to talk about the significance of saving money. Tell them that a kid with a few bucks can buy candy that they will eat right away or a toy that will break because it is cheap. Next explain that if that child saves the money and adds more to it over time, they will be able to buy something with more value that will last a little longer.

Have A Savings Plan

Show the value in savings by deciding on a percentage they should set aside whenever they earn money. A good sum is ten percent because all they have to do is place the decimal point one space to the left. They can then see that For every $1.00 earned, $0.10 will be saved ($53.48 earned, $5.35 saved).

This savings isn’t for a better short-term item, but for a “rainy day” or even a car or college fund. The remaining $0.90 can be used for the candy or “better item” as mentioned above. This principle can teach the child self discipline for very long-term savings (i.e. a house or retirement when they’re an adult).

You already know that a six year old could really care less about saving for an emergency or even driving a car, but they will be able to see that saving ten percent over the years adds up. This teaching is a good for when they get their first job because they will already know about putting some money to the side.

You might also set aside a certain percentage for charitable giving, so kids can also learn about this important aspect of managing money.

As Your Child Grows

When your child is more mature, take him or her to the bank with you and open a line of savings in their (and your) name. Once or twice a month, take your child to the bank so they can deposit their money into their account. Let them see the bank statement and watch how their money is growing with the help of interest.

Interest is a huge part of using money. Either it’ll make you pay more than what your item was originally worth (credit) or it can help you make more money. Teenagers need to understand that unless you can pay off that debt within 30 days, you’ll actually be paying more for your purchased item.

One way to show how detrimental or great interest can be is by doing some role-play. Pick an item your teenager currently wants to purchase on a credit card. Make a chart showing how making only the minimum payment affects the total debt (you’ll also need to explain APR), how long it takes to pay off the debt with minimum payments, and how much interest is paid in total.

You can even switch it by taking the number of months it will take to pay off the debt verses the interest they would earn with a savings account if they save money for the item they want. The amount of interest may not be much, but you want them to see that if you save money to purchase the item, you pay only that amount and there will be no interest to pay along with it.

The goal of teaching how money works is to get children to hopefully see the importance of responsibility when making decisions about money.